Tax tips for parents
From child tax credits to learning bonds, children entitle you to a bevy of benefits and deductions
Ottawa paid out $12.9 billion in child tax benefits and universal child care benefits in the 2012-2013 fiscal year along with another $4 billion in goods and services tax credits, a good portion of which are claimed by low-income families with children. To ensure you're getting your share of those and other benefits and tax deductions, we've compiled a checklist of some of the things you should be thinking about when it comes to your kids and your taxes — right from birth to when they leave the nest.
1. Claim birth-related medical costs
Claim on your return such expenses as the cost of a hospital room or a nurse's pre-natal care.
2. Apply for Canada child benefits
In British Columbia, Alberta, Manitoba, Ontario, Quebec, Nova Scotia and Prince Edward Island, you can apply for child benefits (see below) at the same time as you register a birth — if you are the birth mother and a resident of one of those provinces. The information will be sent electronically to the Canada Revenue Agency.
3. Apply for a social insurance number for your child
New parents need a SIN for their offspring to take advantage of benefits and programs to encourage education savings, including:
- The registered education savings plan (RESP): Parents, other family members and friends can contribute to an RESP as a way of saving funds for a child's post-secondary education. You don't get a tax deduction on the contribution, but the income earned once the money is inside the RESP is not taxed until it is paid out to the beneficiary, who is the one to pay the tax. The federal government can also contribute to an RESP in the form of grants. Quebec, Alberta and Saskatchewan provide added incentives. Having an RESP may also qualify you for:
- The Canada Learning Bond: For children born after 2003 whose family is receiving the national child benefit supplement, the federal government will contribute $500 to an RESP to help cover the costs of a post-secondary education (it will also pay $25 toward the cost of starting an RESP account). It will continue to contribute $100 for each year that the family qualifies for the supplement up to age 15 and to a maximum of $2,000.
- The Canada Education Savings Grant: The federal government adds 20 cents for every $1 of the first $2,500 saved in an RESP each year. Depending on the family income, the government might also provide an extra 10 or 20 cents on every $1 of the first $500 saved annually in an RESP. The grant has a maximum lifetime limit of $7,200 and is paid out up until the end of the calendar year the child turns 17.
4. Claim all federal and provincial credits and deductions you can
- Child tax credit: In the 2013 tax year, the federal credit is $2,234 for each child under 18 (19 in Saskatchewan), which works out to tax savings of around $335 per child. Manitoba and Yukon also have additional amounts for children under 18, and Prince Edward Island, Nova Scotia and Nunavut have them for children under six.
- Children's fitness credit: Claim up to $500 annually in sports and fitness activity fees per child under the age of 16, resulting in a maximum savings of $75 per child. The program must last at least eight weeks and be weekly; if it's a sports- or fitness-related day camp, it must run for five consecutive days. For children up to 18 with disabilities, claim an additional $500.
- Children's arts tax credit: Claim up to $500 annually for children who were younger than 16 at the beginning of the year (or younger than 18 if disabled) and who took part in an eligible program of artistic, cultural, recreational or developmental activity. Besides traditional arts programs, this also includes such activities as academic tutoring,language lessons and Scout and Girl Guide programs.
- Child care deduction: This is a deduction, as opposed to a tax credit, which lowers your taxable income. The parent with the lower income claims $7,000 for each child under seven and $4,000 for children age seven to 16. You must provide a receipt from the care provider.
- Universal child care benefit: All families, regardless of income, are eligible to receive $100 each month per child under six. Apply using the Canada child benefits application.
- Canada child tax benefit: The eligibility and amount of this monthly non-taxable benefit for each child under 18 is determined by total family income, province of residence and number of children. If you file late, payment may be temporarily put on hold as the amount is based on income reported on your annual tax returns. Child benefits are indexed to inflation and new rates take effect July 1 of each year.
- National child benefit supplement: This is a federal supplement that tops up the Canada child tax benefit for low-income families with children under 18. Families get a monthly payment of $185.08 ($186.75 from July 1, 2014) for the first child; $163.67 ($165.17) for the second child; and $155.75 ($157.17) for the third child. The supplement is reduced if the family's net income is more than $25,356 ($25,584) and could affect social assistance benefits since many provinces and territories treat it as income.
- Child disability benefit: This is a tax-free benefit for families who care for children under 18 with mental or physical disabilities. Check out the CRA calculator to see what benefits you're entitled to.
- Adoption expenses: A tax credit can be claimed for expenses related to the adoption of a child under the age of 18. For the 2013 tax year, the government increased the maximum credit to $11,669 — from $11,440, which would amount to a tax savings of $1,750.35. It also increased the eligible period for which expenses can be claimed.
- Transit pass cost: Public transit passes used by children who were younger than 19 at the end of the tax year can be claimed by either parent (including common-law partners).
- Tuition, education and textbook amounts: Students enrolled full time or part time at a university or college or other educational institution certified by the government and who pay more than $100 per institution in tuition fees can claim the total of their tuition fees. Full-time students can claim an additional $400 each month that they are enrolled full time, plus $65 a month for textbooks. Part-time students can claim an additional $120 each month and $20 a month for textbooks. If there are education-related amounts leftover after the student has claimed all he or she can on their own return, these can be transferred to a parent, grandparent, spouse or common law partner up to a maximum of $5,000. Unclaimed amounts carried forward from a previous year by the student cannot be transferred.
- Student loan interest: Claim the interest paid on your student loan in 2013 or the preceding five years for post-secondary education.
- Moving costs: Claim eligible moving expenses if you moved in order to attend a university, college or other post-secondary educational institution full time.
5. Ask your employer to deduct at source
Tell your employer to deduct any child amounts, tuition, education and textbook amounts and amounts for eligible dependants to lower the tax you pay on your paycheque, so you don't have to wait until your refund to get what's coming to you. A personal tax credits return shows you what's covered.
6. File a tax return for your child
Filing a return for children — even those who make just a few dollars babysitting — allows parents to claim deductions and credits on their behalf that may be carried forward indefinitely, providing tax savings in later years when those children's earnings are high and increasing available contribution room for RRSPs. Some provinces even provide cash refunds from the GST credit for children 16 and over. As well, filing may allow someone with more than one job over a year to recover employment insurance premiums or Canada Pension Plan overpayments.